A rising China is boosting the world economy. There's consensus that the country is a responsible stakeholder, a global actor, an important source of global demand and plays a major part of global supply chains.
Most recently, economists at the U.S. Federal Reserve in a discussion paper titled, "Whatever happens in China does not stay in China" provides evidence that Beijing is "an important driver of global financial cycle," and business activity boosted by "stronger Chinese demand" pushing international trade and economic growth.
The study concluded, "As such, higher economic growth in China raises global growth prospects." The authors estimated a 1 percent increase in the Chinese GDP (gross domestic product) could induce 0.3 percent and 1 percent increases in the global economy and trade respectively outside of China. The spillover effects could rise to 0.75 percent or $600 billion for the rest of the world.
Amid the challenges posed by COVID-19 and deteriorating international economy, China's economy reached a record high of around $18 trillion, which posted a growth rate of 3 percent in 2022. Although it may be difficult for China to move overnight from COVID-19 restrictions to free movement of people, some are hoping that China's reopening in 2023 would make a strong impact on global economic growth. For example, the International Monetary Fund (IMF) Managing Director Kristalina Georgieva has expected the country to continue its economic expassion this year as it will likely be the "single most important factor" for global growth.
Notwithstanding, the economies tend to slow down once they reach the middle-income stage due to a higher base average income, some referred the rate to claim that the country's goal, to become a mid-level developed country in 2035, was restrained by sluggish GDP growth. Beijing needed an economic growth rate of around 5 percent to achieve its economic ambitions, they argued.
China has already "closed most of the gap" with the U.S. economy and its potential expansion for the next few years will remain "significantly higher than the U.S.," according to the Goldman Sachs' Global Economics Paper, which also noted a decade of America's "exceptionalism" was over.
In its most recent global economic outlook, the IMF raised its global growth projection by 0.2 percentage points to 2.9 percent in 2023. The "faster-than-expected" recovery came on the heels of the reopening of China's economy. The IMF now projects a sharp rebound in China's growth rate for 2023, from 4.4 percent in the October forecast to 5.2 percent.
Every percentage-point growth in China is estimated to push the global GDP by 0.3 percentage points, which highlights the critical role that the world's second-largest economy will play to revive international growth. Reopening China is a "benefit" to the global economy since it will help to overcome the inflation-battered production bottlenecks and generate higher demand from Chinese households.
The saying – when China sneezes, the world catches a cold – is perhaps more accurately than ever. Beijing has become the paddle wheel of world economic growth. China's 5.2 percent growth is "good news" for the rest of the world, given that the country could contribute a quarter of the aggregate world growth this year.
Positive spin offs of Beijing's strong growth will benefit its closer trade partners such as members of the Association of Southeast Asian Nations. Beijing's economic development will precipitate a spending boom in China to the advantage of the Asia-Pacific region.
Reshoring and trade barriers including in chip-making equipment are one major "concern" for the economists at the IMF as these efforts will weaken international resilience and strain the global economy. The U.S.-coined reshoring could hurt developed and developing economies, contributing to a tremendous rise in poverty; factors such as high labor costs and lack of large-scale manufacturing infrastructure and skilled workforce in the U.S. would disrupt supply chains and cause a further spike in inflation.
China is a major source of world consumption. In 2021, about 40 percent of global vehicle sales; about double the size of the U.S., and 25 percent of the smartphone sales, making it the world's largest smartphone market, had originated from China. In 2019, Chinese tourists spent about $253 billion on leisure trips abroad, with Southeast Asia as their favorite destination, according to the World Trade and Tourism Council.
In December, China pledged to boost domestic consumption and imports to propel growth. Today, international investors feel more sanguine about the country's economic trajectory that is reflected in their purchases of Chinese yuan-dominated assets. The consumption-driven development will create pent-up demand in China and increase exports of the other economies. Right from the outset, China has stood at the core of the global economy and would drive the world economic growth.
*This is my opinion piece that first appeared at "China Global Television Network (CGTN)":